Weekly Technical Market Outlook 6/2/2014

The S&P 500 finished higher by 1.21%, Small Caps ($IWM) finished up 0.79% and International stocks ($EFA) closed out the week up 1.00%. Even though we got a negative GDP print, it seems traders are little concerned about any potential macro weaknesses in the economy and just want to see higher equity prices. SentimenTrader wrote an interesting point on Friday with the S&P closing out the month of May at a new one-year high, “since 1928, it has managed to do so 7 times. The first week of June showed a positive return only 1 time, and the entire month of June was positive 2 of the 7 times. The years were 1944, 1950, 1959, 1963, 1990, 1995, and 2007.”

Trend

As we continue to hit new highs the trend in the S&P 500 ($SPX) is of course up. We remain above our short-term and intermediate-term moving averages, the 20-day and 100-day MAs as well as the rising trend line off the previous lows.

TrendEquity Breadth

We saw a fair amount of positive movement in breadth last week, with the Common Stock-Only Advance-Decline Line hitting a new high, confirming the move that’s taken place in the underlying index. The Percentage of Stocks Above Their 200-Day MA has also come off its low and is attempting to set a higher high above its previous May high of 72.5%.

BreadthThe net number of new highs vs. new lows, a chart I’ve discussed a handful of times this year as a sign of weakening breadth has also shown signs of improvement. This 5-day total measure of breadth has broken its down trend of lower highs since its peak last October. This is a move in the right direction for the market to begin seeing some health internals for the current aging bull market.

new highs lowsEquity Momentum

For the bulk of 2014 I’ve been discussing the negative divergence that’s been happening in both the Relative Strength Index and the MACD. Last week we saw the RSI break above the falling trend line after holding on to the 50 level. While the MACD is still making lower highs, it is rising and may try to play catch up this week or next.

Momentum

Crude Oil

Last Thursday I wrote a post about the relative performance between Crude Oil ($CL_F) and Gold ($GC_F). Today I want to look at just Crude Oil. Since March the $105 level has been resistance, and is just about where price finished up on Friday. With each attempt to break $105 in oil we’ve seen a lower a negative divergence develop in the Relative Strength Index. Prior to the Sept ’13 peak and the January ’14 low, divergence in momentum were taking place. I’ll be watching the rising trend line off January and May lows and if that eventually gets broken as we progress into the summer.

Crude Oil

 Bonds

On Friday we saw the 10-Year Treasury Yield ($TNX) hold on to its October ’13 low as well as its 200-week Moving Average. Below is an interesting chart from Bianco Research of the current 30-Year Treasury YTD performance compared to past years. As you can see, since 1974, the best year for 30-Year Treasury’s was 2008. While many traders and pundits are saying that bonds have run too far too fast while equities slowly craw to new highs, a few basis points at a time. However as the chart below shows, we saw much stronger bullish action in 1986 and 1995 by this point in the year, and both instances saw bonds continue to gain into year-end. While bond yields may be sitting at support right now, the historical context shows that it’s POSSIBLE for bonds to continue to rally, we’ll see if they do.

bond market rally Bianco

60-Minute S&P 500

The S&P has continued to make higher highs as the index rides above its 50-1hr Moving Average. The RSI indicator has been staying right around the 70 level, a sign that bulls are firming in control on this intraday chart. However, we do have a slight negative divergence in the MACD indicator in the third panel of the chart below.

60min spxLast Week’s Sector Performance

After a few weeks of under-performance, Utilities ($XLU) came back last week as the best relative performance sector. Utilities was followed by Consumer Staples ($XLP) and Health Care ($XLV).

weekly sector perfYear-to-Date Sector Performance

With last week’s strength Utilities continue to be the strongest sector YTD with Health Care and Energy ($XLE) are nearly tied for second place. Consumer Discretionary ($XLY), Financial ($XLF), and Industrials ($XLI) are the only sectors still unable to keep up with the S&P 500 so far this year.

YTD sector perf
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Weekly Technical Market Outlook 1/6/2014

Happy New Year! I hope everyone had an enjoyable holiday. I apologize for a lack of posts last week, I was visiting family in Florida and tried to stay as ‘unplugged’ as possible – which for me is extremely difficult. But I’m back home and writing this as Indianapolis gets a blizzard, how I miss the Florida warmth! We closed down roughly 0.5% last week as 2014 trading got underway, the performance over the next few weeks is viewed by many as critical due to the strong relationship between January’s performance with an over 80% track record of predicting if the year finishes in the green.

Equity Trend

We continue into 2014 with the U.S. equity market ($SPX) continuing its up trend. While we saw a slight dip, it did not take us near any major support levels. The slope of the current up trend is still weakening which hasn’t been a bullish sign historically. If a new high can be made soon then we could see slope correct and rise back above the moving average I referenced in the previous post.

 

Equity Trend

EAFE

It has been a few weeks since we last looked at the iShares EAFE ETF ($EFA). Towards the end of December we began to see things pick up for foreign markets, with $EFA beginning to outperform the S&P 500 ($SPX) for a couple of weeks. I had last highlighted the potential resistance level being at the October high, traders had no problem clearing the previous high as the advance took momentum to an ‘overbought’ level on the Relative Strength Index (RSI) (top panel of the chart). While breaching 70 is not an immediate warning sign, traders have had difficulty once RSI broke above this level over the last 12 months, for example in May, September, and October. It’s important to note that a bearish island candle pattern was created last week, with price gaping higher and then gaping lower the following day. This is a potential sign of exhaustion although it has yet to be confirmed with a strong move lower. I’ll be watching the support level I’ve marked with a red line on the RSI indicator, which would indicate we are in a bullish range for momentum and that the up trend in $EFA may still be intact.

EAFE

Equity Breadth

We saw positive movement in equity breadth over the last couple of weeks. The short-term negative divergences I highlighted two weeks ago have been corrected as both the Advance-Decline line and the Percentage of Stocks Above Their 200-day Moving Average have both risen. While the Advance-Decline line has followed the equity market to new highs, the measure of breadth in the bottom panel of the chart, the percentage of stocks above 200-MA, has run into resistance off the May and October highs.

Breadth

Equity Momentum

Like we saw in breadth, one of the divergences in momentum has corrected itself – the Relative Strength Index. The RSI indicator was able to break above 70 while the MACD and the Money Flow Index continue to divergence from the up trend in the S&P 500 ($SPX).

Momentum

 S&P 500 60-Minute

Traders were able to keep the RSI indicator above the ‘overbought’ level of 70 for a few days of trading on the 60-minute chart until price began heading lower recently. Like on the daily chart above, the MACD indicator has been diverging from price on the intraday chart as well. Price is now bumping up against its 50-1hr Moving Average. This is the level I’ll be watching on a short-term basis this week if we are able to see price continue to advance.

SPX 60-min

Gold

In this Yahoo! Finance article of 2014 market predictions I commented that I would be watching commodities, specifically agriculture and precious metals in 2014 for a potential trend change. I’m not predicting that commodities will be a strong performer this year, but they were beaten down pretty hard in 2013 with sentiment at historic lows. This could help propel certain portions of the asset class higher if things begin to improve in the price action. Today I want to look specifically at gold ($GC_F). Last week we created a double bottom with the June ’13 low at $1,175. With pricing finding support at this previous low the Relative Strength Index was able to stay above 30 and create a positive divergence as it made a higher low. The momentum indicator is testing previous resistance right now and if buyers don’t get scared, then we could see RSI breakout. Turning the focus back to price, we are still in a clear down trend with price under its long-term and intermediate-term moving averages. I’ll be watching the 50-MA as well as the trend line marked in green on the chart below. It seems no one is bullish on gold right now, which is a great reason to keep an eye on this shiny metal and if we see a short squeeze that sends price higher.gold

Major Events This Week

This week we get more attention put on the Fed. With the latest announcement of the Federal Reserve tapering their stimulus program, traders will likely be eager to gain more detail from the FOMC minutes. Here’s are some of the major announcements coming out this week:

Monday: ISM Non-Manufacturing Index
Tuesday: International Trade
Wednesday: FOMC Minutes
Thursday: Jobless Claims
Friday: Non-Farm Payroll Report
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Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Weekly Market Technical Outlook

This week I am starting something new with the blog. Each Monday morning I’ll be posting a series of charts that look at the big picture of major markets. Something I’ve personally been working on lately has been stepping back and not getting lost in the flood of information. These are also some of the charts I use in my firm’s weekly investment committee meeting and show a weekly market technical outlook. Hopefully this post each week helps you get a better idea of where the markets stand from a technical perspective and makes you better prepared for the week ahead.

Equity Trend

First up is the overall trend on a daily chart of the equity market via the S&P 500 ($SPX). For 2013 the trend has been positive with a few bouts of volatility along the way. The green dotted line on the chart below connects this year’s lows and helps identify the overall trend. I’ve also included the 20-day and 100-day moving averages. Depending on time horizon, these two MA’s have acted as support during recent down swings.

SP500 TrendEquity Breadth

Think of equity breadth as a measure of health for the up or down trend. As the S&P 500 ($SPX) rises we want to see strong participation. With that, there are multiple ways for us to measure participation or the health of the trend. First we’ll look at the cumulative number of advancing issues minus declining issues on the NYSE. When there are more stocks rising than falling this line will climb higher. Up until recently we had been seeing confirmation from the advance-decline line for the up trend in the S&P. The current slight divergence isn’t a red flag yet as it can be easily corrected. If the advance-decline line weakens further and begins making lower highs, then I’ll begin to grow more concerned.

On the bottom panel of the chart below we have the percentage of stocks above their 200-day moving average. It’s often thought that a stock is in an up trend when it’s above its 200-MA. We can use the percentage of stocks above their long-term moving average as another way to gauge market participation. This measure of market breadth has caused many traders to grow concerned about the strength of the currently rally, myself included, due to it’s deepening negative divergence from the equity market. While stocks make new highs, we aren’t seeing the same action in stocks above their 200-MA. However, the percentage has been making higher lows, which is constructive for the current rally. Currently I view market breadth as neutral with a slight positive bias.

Equity Breadth

Equity Momentum

There are three tools for measuring momentum that I like to use on a daily chart. The first is one I often use on the blog, the Relative Strength Index (RSI) which is in the top panel of the chart below. While we are seeing a slight negative divergence in the RSI, it is still firmly in a bullish range as previous periods of weakness in price have been unable to push the indicator into ‘oversold’ territory (below 30.) Next up is the MACD indicator. This indicator has been flattening out over the last few weeks, which is slightly worrisome. Finally, in the bottom panel of the chart is the Money Flow Index, which works like the RSI but incorporates volume. Despite the potential for a divergence, nothing quite concerning here.

equity momentumS&P 500 60-Minute Chart

To take a step further in looking under the hood of the equity market I like to watch a 60-minute chart of the S&P 500 ($SPX). What I’m looking for here are short-term levels of support and resistance as well as confirmation in measures of momentum. Right now, we have established support just above the 1800 level, as show by the dotted purple line. Looking at momentum, we have a slight divergence in the Relative Strength Index in the top panel of the chart. While the price action has headed higher, RSI has been making lower highs over the last two weeks. We are also not seeing confirmation in the MACD indicator, another measurement of momentum. I’ll be watching to see if the previously mentioned level of support holds up as well as the 50-1hr moving average.

SP 500 60minLast Week’s Sector Performance

Below is a chart of last week’s sector performance. Being a shortened holiday week, it’s not surprising we didn’t see much movement in the major S&P sectors. The leading two sectors were technology ($XLK) and consumer discretionary (Cyclicals $XLY) with energy ($XLE) being the worst performer.

Week perfYear-to-Date Sector Performance

For 2013 the leading sector has been health care ($XLV), followed by consumer discretionary ($XLY) and industrials ($XLI). The utility sector ($XLU) continues to show the weakest YTD performance.

YTD PerfBonds

To represent the bond market I’m using the iShares Aggregate Bond ETF ($AGG). We’ve seen some nice strength in bonds off the Sept. low, even in the face of a strong equity move. At the close of last week it seems $AGG is creating a wedge between its 200-day moving average and 50-day moving average. Things still look bullish for bonds but I’d like to see a breakout above the 200-MA.

bond trendInternational

Off the July low we had been seeing some relative performance strength out of the iShares EAFE Index ($EFA), as shown in the bottom panel of the chart below. However, domestic stocks have taken back the reigns and have been leading for the last month. Looking at the top panel of the chart, at the Relative Strength Index, we have some nice support just under 50 as buyers continue to step in to buy dips in $EFA. If price continues to rise I’ll be watching for potential resistance at the October high.

EFACommodities

The commodity markets have just been awful this year. I highlighted one potential bright spot last week, but on a relative basis there hasn’t been much to like in commodities. The RSI indicator is approaching resistance as $DBC, a commodities tracking ETF, struggles to break above its 50-day moving average. The trend in commodities is firmly negative.

CommoditiesMajor Events This Week

While my focus is always on the price action, I think it’s important to know what major economic data announcements are approaching. Here’s a list of what’s being announced this week:

Monday: ISM Manufacturing
Tuesday: Motor Vehicle Sales
Wednesday: New Home Sales, ISM Non-Manufacturing, and Beige Book
Thursday:Jobless Claims and GDP
Friday: Non-Farm Payroll

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.